Pakistani Military Cracks Down on Taliban Militants; Murder on a College Campus

Aired May 7, 2009 - 16:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, HOST: Happening now, fight and flight in Pakistan right now. The military cracking down on the Taliban and thousands of Pakistanis are right now running for their lives.

Might your bank collapse if the economy gets worse putting your money at risk? After weeks of rigorous testing, the results are in about which banks might survive a deeper recession.

Lock your doors and avoid going outside. That's what officials are warning students at a major college and nearby residents. One woman is dead and the suspected killer may be hunting students and Jews. I'm Wolf Blitzer in CNN's command center for breaking news, politics and extraordinary reports from around the world. You're in THE SITUATION ROOM.

Right now, a war zone boils with killings and all out chaos in northwest Pakistan. A peace pact is dead as the military beats back Taliban advances that put extremists alarmingly close to Pakistan's capital and those nuclear arsenals caught in the middle of all of this fighting, some terrified civilians. Thousands are leaving their homes, dodging bullets, militants and road blocks. They're simply hoping for some safety. Let's bring in our pentagon correspondent Barbara Starr, she's monitoring what's going on. Looks like potentially a decisive moment for Pakistan.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: It does look like that, Wolf. The U.S. has been urging Pakistan absolutely for weeks to deal with the extremist threat, but behind the scenes, there is growing concern about what the Pakistani military is really up to.

(BEGIN VIDEOTAPE)

STARR (voice-over): Pakistanis are flooding the roads, on the run. 40,000 already displaced by the fighting between the military and the Taliban here in the Swat Valley in recent days. Camps are filling up as people wait for food, water and shelter. This man says there's been heavy shelling. The U.S. has been pressuring Pakistan to crack down in Swat, a government peace deal failed, the Taliban began to rule here, getting the new (INAUDIBLE) to expand their operations. So officially, the U.S. supports the Pakistani military action.

ROBERT GATES, DEFENSE SECRETARY: I personally have been very satisfied with the strong response that the Pakistani government and army have taken. STARR: Pakistani President Zardari is asking for humanitarian aid and promising to continue the offensive. But the government is empty now, whole towns and villages so troops can move in. It's a counterinsurgency strategy that could spell disaster.

DAVID KILCULLEN, ADVISER TO GEN. PETRAEUS: What we're seeing is a heavy military approach, it's what you might describe as a search and destroy or sweep and clear.

KILCULLEN: They close ranks behind extremists and you bring more support to the enemy and the whole population pushes back against you and you find yourself fighting everybody who lives there.

STARR: With more Pakistani troops expected to move in, U.S. military officials now privately say the Pakistani military must start a new strategy, target only militants and provide aide for people who are caught in the cross fire.

(END OF VIDEOTAPE)

STARR: U.S. officials say that Swat really is more than just a remote valley in Pakistan because the Taliban are making clear it's just one step in their effort to seize more territory, more control in Pakistan. Which of course is such an important U.S. ally for the United States and that nuclear power hold.

BLITZER: There is the thought that top pentagon officials are really laying low right now, they're not speaking out about all of this. You cover the pentagon for us, what's going on?

STARR: You know that's what we're finding, publicly, very supportive of the Pakistani moves, privately, behind the scenes, absolutely worried that this will all backfire. The Pakistani government right now, they tell us, could not be more fragile in its political strength in Pakistan. They don't think the Taliban are about to stage a coup and takeover or the military, but this is a country right now of great instability. That's not good news for the U.S.

BLITZER: The ramifications for Afghanistan, the neighbor next door, enormous. Tomorrow, we're going to be speaking with the president of Afghanistan, Hamid Karzai. He'll be here in THE SITUATION ROOM, we'll talk to him about this and a lot more. Barbara thanks very much.

The U.S. is providing money to Pakistan and its military. Of the $1 million in emergency aide, $400 million is for new military aide, mostly to train and equip Pakistani forces for counterinsurgency operations like this one. In terms of troop strength, Pakistan's military right now ranks seventh in the world with about 620,000 troops, active duty troops. By the way, another 500,000 Pakistani troops are in the reserve. President Obama hopes to save you $17 billion. Today, he offered a more detailed look at his 2010 budget plan, asking congress to cut or cut back funds for more than 100 programs, but republicans and some others are ripping into the president's proposals and the president's plan may anger some of his own political allies as well. Let's go to our Jill Dougherty. She's over at the White House with more on this story. What happened today?

JILL DOUGHERTY, CNN CORRESPONDENT: Wolf, you know, President Obama today said that Americans are tightening their belts and so should Washington, but the federal budget isn't on a diet yet.

(BEGIN VIDEOTAPE)

DOUGHERTY (voice-over): Because President Obama wants are sure to annoy both parties. Conservatives, by eliminating the Pentagon's F-22 raptor fighter jet saving $2.9 billion. Liberals, by ending the educational program Even Start saving 66 million. Ending or reducing 121 programs would total $17 billion in savings.

OBAMA: For every dollar we seek to save, there will be those who have an interest in seeing it spent. That's how unnecessary programs survive year after year, that's how budgets swell.

DOUGHERTY: House republicans say they've heard this song before.

REP. JOHN BOEHNER, (R) MINORITY LEADER: They are the same cuts that were proposed by President Bush that congress, the democratic congress, chose to ignore.

DOUGHERTY: Senator John McCain calls the cuts important, but he wants more.

SEN. JOHN MCCAIN, (R) ARIZONA: What I'd really like to see from the president is just an open statement saying I will veto any bill that comes appropriations bill that comes across my desk with a single earmark on it.

DOUGHERTY: The president's proposed cuts are just one-half of 1 percent of a total budget of $3.6 trillion.

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: $17 billion is a lot of money to people in America. I understand it might not be to some people in this town, but that's probably why we're sitting on a $12 trillion American express bill.

(END OF VIDEOTAPE)

DOUGHERTY: Now, percentage wise these cuts may be small, but President Obama says none of this will be easy and his aides say you've got to start somewhere. But they've got a pretty big hole to dig out of. Wolf?

Now let's check in with Jack Cafferty right now, he has the Cafferty file. Jack? JACK CAFFERTY: President Obama broke with yet another Bush White House tradition today by not holding a public ceremony to recognize the national day of prayer. During the Bush administration you'll recall the White House hosted an interfaith service in the east room every year, inviting Protestant, catholic and Jewish leaders. Bush's father and President Reagan also marked national prayer day with a White House ceremony. But this White House says quote, prayer is something the president does every day. They add that Mr. Obama would sign a proclamation to recognize national prayer day. They would not comment on whether Bush's ceremonies were politicized but they did say that President Obama quote, understands in his own life and his family's life, the role that prayer plays, unquote.

Meanwhile, both Christian conservatives and atheists are critical of the president's decision. The national day of prayer task force says it's disappointed in the toned down observance this year. At this time in our country's history we would hope our president would recognize more fully the importance of prayer, unquote. And a group called American atheists wishes the president would take it a step farther and ignore the day altogether. They say it's not the president's job to tell people to pray and the separation of church and state should mean just that. So here's the question. How much does it matter whether the president publicly observes the national day of prayer. Go to cnn.com/caffertyfile and you can post a comment on my blog.

BLITZER: Jack Cafferty, thank you.

A suspected killer is the focus of a nationwide manhunt right now. A female college student is dead and officials say the suspect may be hunting to kill students at a major college and may be hunting to kill Jews.

A computer hacker claims to be holding hostage millions of people's medical records and demands millions in ransom. Wait until you hear his or else threat.

And the Reverend Al Sharpton, he's going to get ready to take us behind the scenes of a very unusual White House gathering. Sharpton along with New York City's Mayor Michael Bloomberg and the former House Speaker Newt Gingrich, they all met with President Obama today over an important issue.

(BEGIN VIDEO CLIP)

REV. AL SHARPTON: We may not agree on certain specific issues, but there must be a commitment in this country for equal education for all American young people.

(END OF VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: Lock your doors and avoid going outside. Frightened students at a major college they're getting that message right now along with nearby residents. Someone killed a female student. The suspect is on the loose and officials say he may be looking to kill more students and Jews. Let's go straight to CNN's national correspondent, Susan Candiotti. She's in Middletown, Connecticut with the latest. Looks pretty deserted over there behind you for good reason I suppose Susan.

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: Well in some areas of the town you can say that certainly it is deserted on campus. Here there is some activity that appears to be normal in Wesleyan, but the mayor here has asked people to please be on alert and they are saying that this is a murder that has certainly rattled this town. Also, they are saying it is not a random shooting, that the victim in this case, 21-year-old Johanna Justin-Jinich, apparently knew her suspected killer whose name is Steven Morgan and that he knew her long before he gunned her down inside a bookstore. Here's the police chief.

(BEGIN VIDEO CLIP)

CHIEF LYNN BALDONI, MIDDLETOWN, CONNECTICUT POLICE: Detectives have uncovered a connection between the victim of yesterday's shooting and the suspect Steven Morgan. This information leads investigators to believe that this shooting, while tragic, was not a random act of violence. A nationwide APB has been issued for Steven Morgan who has past connections to New York, Colorado and Massachusetts.

(END OF VIDEO CLIP)

CANDIOTTI: And before we tell you about those connections, we can also add this. Police tell us now that Morgan apparently kept a journal of some kind in which he indicated threats against both Wesleyan as well as its Jewish students. So they're particularly concerned about that, so is a synagogue here in town, which has canceled all of its activities for at least the next day. Now, we can also tell you that this is a connection that authorities are speaking of, at least one connection any way.

That two summers ago, around July of 2007, both of them attended a summer course at NYU, New York University. And in that month of July, the victim in this case Ms. Jinich contacted campus police and then NYPD, New York Police Department to say that Morgan had allegedly made threats against her in phone calls and in emails but that she did not want to press charges. Now a classmate tells CNN that at one point, Jinich told her that she had filed a restraining order against Morgan. We are trying to track that down. But for now, certainly to say the least, this town, this campus is rattled. There are no classes right now because they're getting ready for final exams on Monday. We don't know yet whether they will go on as scheduled. Wolf?

BLITZER: And I take it the victim was Jewish herself, is that right?

CANDIOTTI: Yes, that's correct.

BLITZER: Ok, stay on top of this. We're going to get back to you. Susan Candiotti joining us from Connecticut. Let's get to another potential killer right now, this one spurred on by nature. A wildfire raging across parts of California, forcing more than 13,000 residents to evacuate their homes. Let's go out to Santa Barbara, CNN's Thelma Gutierrez is standing by watching what's going on. Pretty scary stuff out there Thelma.

THELMA GUTIERREZ, CNN CORRESPONDENT: Absolutely Wolf and so many people now are wondering if their homes are still left standing. Now this area, Mission Canyon, has been closed off to the public. There are so many hazards just like this one that you see right behind me, downed power lines all throughout the canyon on the way up. Now I'm going to cross over and you can take a look at what's left of this home down on the ridge, it's completely destroyed. Shows you how quickly this fire moved through this canyon area yesterday afternoon. The family who lived here had lived here for 31 years and one of the neighbors told me the hardest thing she had to do was to have to break the news to them last night that their home was completely destroyed. You see what's left of their garage as well. They were able to get away in a third vehicle. Now 1500 acres have burned in this area and this is the third major fire in just nine months. Right now, firefighters are taking advantage of the fact that the winds are down, so they have 16 aircraft flying through the area, trying to knock out the hot spots in these very steep canyons. Wolf?

BLITZER: And it looks like there's no end in sight is that what you're saying or have they pretty much look like they can get this thing under control?

GUTIERREZ: You know that's the big question Wolf. All it takes is for the winds to kick up later on this afternoon and you might have another flare-up and that's what they're worried about. You take a look at the ridge right behind us, it's completely up in smoke right now. So you can hear all the aircraft around us trying to knock off all the hot spots. They want to do it before those afternoon winds kick up because they just don't know if this area will fare up again.

BLITZER: All right Thelma, we'll check back with you. Good luck to all the firefighters out there, all the folks out in the Santa Barbara area. Abbi Tatton has got some i-Reports from people watching this fire approach closer and closer to their homes. Pretty amazing stuff coming in.

ABBI TATTON, CNN INTERNET REPORTER: Wolf, you've got the 13,000 homes under this mandatory evacuation, but right next to them, thousands more residents who were wondering if and when they should leave, watching the flames approach. This is what they're talking about, the front yard here of Jenny Deakyne's home. She says she got a pretty good view of the mountain from there. If you look closely at the end of that picture you're going to see flames there. If we advance it, you'll see just how ominous these smoke clouds look when they come close. Jenny says her family has two cars, packed and ready to go in the driveway and they can leave at a moment's notice should they need to.

Looking also nearby at Ryan Pfleger's video. This is a film student in the Santa Barbara area. He stood on his rooftop and showed us a panorama of what it looked like around there and you can really hear the winds in this photo. Ryan said this morning first thing it looked a little better, then the winds picked up again and now he's seeing flames again where he is. Ryan says he's lived there since 2003. They're certainly used to wildfires, but he says this is the first time they've been genuinely nervous.

BLITZER: So much depends on the winds as you point out. All right Abbi we'll get back to you as well.

A pregnant British woman who had been facing the possibility of death by firing squad. The story of her ordeal in prison is now attracting international attention. And now, a new twist that could send the woman home.

Plus, decades after astronauts landed on the moon, there's this question. Will America ever return? What President Obama ordered that has people talking.

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BLITZER: Fredricka Whitfield is monitoring some other important stories incoming into THE SITUATION ROOM right now. Fred, what's going on?

FREDRICKA WHITFIELD, CNN ANCHOR: Hello Wolf, a tentative deal has been reached in the case of a pregnant British woman in prison in Laos. Twenty year old Samantha Robiter(ph) has been jailed in the southeast Asian country since August when she was accused of smuggling 1.5 pounds of heroin. Britain and Laos have agreed that if she is convicted, she will be allowed to serve her prison term in Britain.

And there are now almost 900 confirmed cases of the swine flu in the United States. The Centers for Disease Control and Prevention says most Americans caught the bug right here at home and only 10 percent picked up the illness traveling to Mexico. The ages of Americans who caught the h1n1 virus range from one month old to 87 years old.

The U.S. Supreme Court has rejected alleged Nazi death camp guard's John Demjanjuk's bid to stop his deportation to Germany. Demjanjuk's lawyers say that he is in poor health and too frail to travel overseas. Germany accuses the retired 89 year old Ohio autoworker of 29,000 counts of accessory to murder during World War II. He has long claimed that he was a prisoner of war, not a death camp guard. Wolf?

Millions of patient records stolen and held for ransom? A hacker claims to have broken into a state website. What the hacker is now demanding.

And a most unlikely trio coming together over at the White House. The situation that Newt Gingrich, Mayor Michael Bloomberg and the Reverend Al Sharpton say is so serious is a threat to the country. Reverend Sharpton is walking into THE SITUATION ROOM. Reverend Sharpton, we're going to talk in a moment. You've taken us inside, what happened in that room at the White House when we come back.

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BLITZER: To our viewers you're in THE SITUATION ROOM. Happening now, the results of the bank stress tests are coming in. Is your bank able to withstand tougher economic times or is it in need of more help?

Online gambling it's illegal now, but some in congress say reversing that could open up billions of dollars for the federal government.

Tens of thousands of Pakistanis fleeing the fight between their countries military and the Taliban. I'm Wolf Blitzer, you're in THE SITUATION ROOM.

A threat to national security. A crisis of education, just some of the terms used to describe a situation that's bringing together some unlikely allies. The former house speaker, Newt Gingrich, New York City Mayor Michael Bloomberg and the Reverend Al Sharpton, they met together today with the president over at the White House to talk about improving education. Reverend Sharpton joining us now here in THE SITUATION ROOM. Wow, it's an unusual trio that came in to see the president. I can understand you, Mayor Bloomberg, but Newt Gingrich is so conservative, a very outspoken republican, he's been very critical of the president, how did that go?

REV. AL SHARPTON, NATIONAL ACTION NETWORK PRESIDENT: It was very good. You know we're getting ready for a mass rally here in Washington May 16th around the anniversary of Brown versus the Board of Education. So I've been concerned and the National Action Network has about the continued inequality in education,. 55 years later, still a race gap in how kids are educated. So I invited Newt Gingrich to our National Action Network convention.

BLITZER: He's going to speak at your rally?

SJARPTON: He came last month in April and he said that he would participate. He agreed, we need equal funding. I don't agree with him on vouchers, but we all agree on equal funding, we all agree that every student should not be eliminated from the possibilities of being educated. Vice President Biden came and spoke the next day, we asked for a meeting, the organization, with the president and the president said, why don't we have unlikely people that don't agree, I don't agree with vouchers, I'm not supporting Mayor Bloomberg for reelection or (INAUDIBLE), he said why don't we have unlikely people talk about it so people understand how serious this is.

BLITZER: This is an issue where at least on some parts of education, you and Bloomberg and Gingrich agree, is that right?

SHARPTON: Equal funding, we agree. Having teachers that are adequate, we agree. Giving incentives to teachers, we agree, and we agree that there's a crisis in the country.

BLITZER: Take us into the White House. You're sitting there with the president, Mayor Bloomberg and Newt Gingrich, was it awkward, given some of the politics of Newt Gingrich's criticisms of the president?

SHARPTON: I think it was different. In fact, Mr. Gingrich sat on the couch next to me. The president's sitting her, Mayor Bloomberg --

BLITZER: In the oval office?

SHARPTON: In the oval office over here. And the president's very direct. He says I don't agree with you guys on some things including Sharpton and he says, but how do we get the country together? How do we dramatize? This is a serious problem. In some cities, 52 percent of black kids not having a high school diploma in an economy where we don't have unskilled jobs available anymore. We said the fact that unlikely people coming together may get the attention.

BLITZER: Was there tension there between the president and Newt Gingrich?

SHARPTON: I think there was not. I think that the president and Newt Gingrich had a respect for each other stepping out on a limb for the kids of this country. I think that the fact that Mr. Bloomberg is running for reelection and I'm campaigning on the other side. I think people were called upon to step above their politics and --

BLITZER: This was strictly a discussion on education. You didn't get into other issues.

SHARPTON: All the way. We never discussed any other issues other than education and the fact that we're 55 years past Brown and we're going to have this rally.

BLITZER: So what I hear it was pretty cordial?

SHARPTON: It was very respectful, very cordial, but it was candid. We didn't act like we were all each other's buddies, we didn't act like we were going to hang out tonight and have dinner. We were saying this is a crisis and in a crisis people that don't agree come together. That's what crises do if you have real leadership.

BLITZER: So far, how's he doing, the president of the United States?

SHARPTON: I think he's doing very well, Wolf, I think he's given some credibility back to the country internationally. I think he's given vision. I think today shows this president has people that don't necessarily agree with him like Newt Gingrich, willing to take a risk to come work with him. That's the kind of leadership the country needs. I think he's doing very well.

BLITZER: Reverend Sharpton, thanks for coming in.

SHARPTON: Thank you, Wolf.

BLITZER: Well, do this again.

Word that the prisoners from the Guantanamo detention center could be moved to the United States is setting off quite a firestorm right now. Republicans argue that suspected terrorists shouldn't be allowed on American soil.

Let's go to our senior political analyst Bill Schneider. He is joining us. Bill, are Republicans putting Democrats on this sensitive issue on the defensive?

BILL SCHNEIDER, CNN CORRESPONDENT: Yes, they are. They have a new offensive on an old issue. Terrorism.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): House Republican leaders have a new initiative. The Keep Terrorists Out of America Act.

REP. JOHN BOEHNER, (R) MINORITY LEADER: We ought to make clear that none of these detainees should be brought to the United States until such time the president has had a conversation with the American people.

SCHNEIDER: Candidate Obama made a commitment to close Guantanamo during the campaign. The issue is what to do with some 240 detainees still there. The Justice Department says some will be put on trial, some who are determined not to be terrorists will be released and some, who cannot be tried without compromising classified information will be quote, "detained on a fairly extended basis."

UNIDENTIFIED MALE: If we do not convict a terrorist then the Supreme Court has ruled that we can only detain them for sixth months.

SCHNEIDER: Do Americans want to close Guantanamo? They're divided. Two thirds of Democrats want it closed. Nearly two thirds of Republicans want to keep it.

UNIDENTIFIED MALE: Guantanamo was chosen for a specific reason. It is isolated. That all fundamentally changes when you take them off an island, away from Gitmo, and plunk them down in the middle of Michigan, in the middle of Kansas, in the middle of Virginia or in the middle of New York.

SCHNEIDER: Do you want these dangerous terrorists in your community, Republicans are asking, with pictures? What's the White House proposing to do with the detainees? It's under review.

ROBERT GIBBS, PRESS SECDRETARY: No time frames or announcements other than the review that the president ordered at the very beginning of his administration is ongoing.

SCHNEIDER: Democrats say let's see what the report recommends.

SEN. HARRY REID, (D) NV: High class study that's being done to determine what should be done with the prisoners. (inaudible) waited until then. (END VIDEOTAPE)

Let's get to another story filled with political intrigue, it's regarding the Pennsylvania senator, who was a Republican, but is now a Democrat. The switch has cost him some priority ranking, but now, we're learning of a brand new twist. Our senior congressional correspondent Dana Bash has got more on what's going on. It seems to be changing almost by the hour. What is the latest on Arlen Specter and his relationship with his fellow Democrats?

DANA BASH, CNN CORRESPONDENT: There are plenty of Democrats who will tell you, Wolf, that some of the things that Arlen Specter has said, some of the votes he has cast since becoming a Democrat has essentially poked many of them in the eye, but at the end of the day Democratic leaders decided today that punishing Arlen Specter is bad politics.

(BEGIN VIDEOTAPE)

BASH (voice-over): What a difference a day makes. Just yesterday, Democrats had stripped Arlen Specter of his seniority, made him the most junior senator on all committees. Now, the Republican turned Democrat has the gavel back. Democrat Dick Durbin offered Specter his post as chairman of a key subcommittee that yields power over the Justice Department. In a hallway where cameras aren't allowed, Specter told reporters he's relieved.

BASH: So why the surprising turnaround? Privately, senior Democratic sources tell CNN it's an attempt to clean up a political mess. The public spat between Specter and Harry Reid, Specter accusing Reid of breaking a promise.

SPECTER: The seniority issue was committed to me by Senator Reid.

BASH: One senior Democratic source told CNN that Democratic leaders that it's best to make amends with Specter, especially with upcoming hearings on a Supreme Court nominee. "The last thing we want is a disgruntled Democrat at the end of the dais," said the source. And Specter got another political boost. Popular former Republican Governor Tom Ridge who has been flirting with the idea of running for Specter's seat announced he would not.

(END VIDEOTAPE)

BASH (on camera): Now, it has been a very rocky week for Arlen Specter and his new Democratic Party, but at the end of the day, the raw politics for Democrats here is that he is a Democrat and he is a Democrat from a swing state of Pennsylvania and Democratic leaders want him to win that seat back. And Specter said today to us in the hallway, Wolf, that he does believe getting this little bit of power will help him do that.

BLITZER: And that decision, Dana, by Tom Ridge, the former governor, a Republican not to run, that's a huge, huge potential bonanza for Arlen Specter in his bid to get re-elected. The polls show he would give him quite a run.

BASH: The polls showed him he would give him quite a run. The polls showed basically the two of them in a statistical dead heat. Anecdotally, Wolf, when I was in Pennsylvania earlier this week, I talked to several Democrats and independents who said they were planning on voting for Arlen Specter. But then when I asked what about if Tom Ridge were in the race, they all paused and said that would be a much harder decision.

That's a decision that the voters won't have to make now and that is a big plus as you said politically for Arlen Specter.

BLITZER: That's a lucky political break for Arlen Specter indeed. All right, Dana, thanks very much.

Millions of people's medical records possibly held hostage right now. A computer hacker claims to be holding them. Wait until you hear what he wants.

Battle of the political architects. George W. Bush's strategist Karl Rove versus David Plouffe who helped President Obama win. You're going to hear how they sparred at a recent meeting.

And a push to legalize online gambling. Supporters suggest it could help the economy. Opponents say it could promote dangerous behavior.

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BLITZER: New details on President Obama's proposed budget for 2010. The president is offering to cut $17 billion in spending, but critics say it doesn't go far enough. Our senior political analyst Gloria Borger is here. These cuts that the president proposed, there's a limit to how much he can cut in this $3.5 trillion budget because so much of it is mandatory.

GLORIA BORGER, CNN ANALYST: That's right, Wolf. Take a look at this chart we're going to put up here. Out of this $3.5 trillion, you see that entitlement spending is almost 60 percent. Entitlement spending is Social Security, Medicare, all kinds of health care.

BLITZER: And unless they totally reform that there's not going to be any cuts.

BORGER: Exactly. And then if you add in defense spending, you've got three quarters of the budget. What the president is cutting that out of, Wolf, is that gray area, other spending. So unless they tackle these entitlements, it's going to be a real problem. Now top be fair, the administration is saying that cutting health care costs, fixing health care is a real part of deficit reform and they hope to do that this summer.

BLITZER: Although a lot of people say that defense spending could be cut, too. There are big ticket items in there.

BORGER: Procurement ...

BLITZER: But that's another story. How worried are Americans right now about all of this spending because it's really going up and up?

BORGER: Americans are very worried. They are ambivalent. They understand that you've got to spend money to get out of this economic ditch, but take a look at this recent poll. When you ask them which makes you feel the most negative about President Obama, that he's not tough enough on banks, 36 percent. They don't like the spending on banks. But the second thing is spending too much and increasing the budget deficit.

That's why you saw the president himself out there today talking about cutting this money, talking about cutting more in the future because he understands that the American public doesn't want to see a president who goes back to the old tax and spend ways and that's what the Republicans are labeling the Democrats as right now.

BLITZER: We've got some tough questions coming up for the budget director, Peter Orszag. He's going to be here in THE SITUATION ROOM. Gloria, thanks very much.

BORGER: Sure.

BLITZER: A state Web site hacked. Patient records and the personal information of millions of people now at risk and now, the hacker is demanding a $10 million ransom. CNN's Brian Todd is working the story for us. All right, Brian, what's going on?

BRIAN TODD, CNN CORRESPONDENT: Wolf, this is a Web site that has about 35 million personal records for some very sensitive drug prescriptions and it has been compromised.

(BEGIN VIDEOTAPE)

TODD (voice-over): A shakedown targeting the Virginia state Web site that tracks potential abuse of drugs like Oxycontin and Vicodin. A hacker claims to have stolen more than 8 million patient records, more than 35 million prescriptions. The attacker brazenly wiped out the home page of the Virginia Prescription Monitoring Program's Web site last week. In its place, a note saying, quote, "I have your expletive. I have made an encrypted backup and, quote, for $10 million, I will gladly send along the password."

Experts warn of the security threat.

PROF. DOUGLAS SZAJDA, UNIVERSITY OF RICHMOND: They have no guarantee he hasn't made 1,000 copies of this. And sent them out and is still going to send them to the highest bidder.

TODD: The person did threaten that if not paid by late this week, quote, "At the very least I can find a buyer for personal data, name, age, address, Social Security number, driver's license number."

Virginia officials tell us driver's license numbers are not posted on the site, but the other information listed by the hacker, including some Social Security numbers, is posted.

IRA WINKLER, AUTHOR, "SPIES AMONG US": That's enough in many cases to perform identity theft, depending on how much the company you are giving it to checks out the information.

TODD: The state prescription Web site is now shut down, but the hacker's extortion note is preserved on WikiLeaks, a Web site that publishes leaked documents. The FBI and state police are investigating, but won't comment on the case.

(END VIDEOTAPE)

TODD (on camera): Now, state officials tell us they don't have evidence that any personal information may be at risk in this case. They say they have not lost any of the information that was hacked.

Virginia's Governor Tim Kaine says this hacker shouldn't be paid a dime. Internet security expert Ira Winkler agreeing, saying it's like giving into the demands of terrorists and he says given the apparent immaturity of this hacker, there's no guarantee that he wouldn't just take the money and then sell that information any way. Wolf?

BLITZER: Wasn't this information, Brian, protected on the Web site?

TODD: Ira Winkler, the cyber security expert we interviewed says it should have been what he calls encrypted. And that means put on some kind of a code that only the operators can access. He says it's not clear this information was encrypted. We asked state officials about that and they said they could not comment on that aspect of this while the investigation is still going on.

BLITZER: Brian, thanks very much.

President Obama won the White House, but is he still in campaign mode? That question is put to the man who managed the Obama campaign. He gives an emphatic answer. Then Karl Rove pounces. Stand by for the videotape.

She's arguably the most high profile mother and she wants to help other working mothers as well. The first lady, Michelle Obama talks openly about her struggles working and raising a family. You're going to hear her advice for others.

(COMMERCIAL BREAK)

BLITZER: Just getting this information in. A developing story out in suburban Washington, DC, Prince George's County, Maryland. Let's go back to Fredricka. What are we learning, Fred?

FREDRICKA WHITFIELD, CNN ANCHOR: Well, this is pretty extraordinary, Wolf. A very close call for people who are shopping at the Penn Mar Shopping Center in Forestville, Maryland, as you said, in Prince George's County, but even closer call, much more dangerous for the firefighters and a representative with Washington Gas who actually responded to reports of a smell of gas coming. Apparently, a pregnancy center there at the shopping center called in this report that they smelled gas. But guess what, Wolf, just as the firefighters got there with the camera rolling and just as they were responding to the report, and just as the Washington Gas representative was about to turn off the gas, take a look at what the camera mounted on a fire truck captured.

All right. Pretty extraordinary there, Wolf. We understand that eight people have been injured. Seven of whom, were firefighters and one, the other person injured was that Washington Gas representative who was trying to turn off the gas. Still unclear exactly what happened, how this explosion took place, but it could have been far worse, with many people at the shopping center. We understand about six store fronts, even though we see in this image, at least three that were actually damaged by this explosion, but we understand based on some other reporting in the area, six store fronts were damaged from this explosion. Of course we'll keep you up to date on the injuries of at least eight people as a result of that explosion likely rooted from the smell of that gas that was reported earlier, Wolf.

BLITZER: What a dramatic picture that is.

WHITFIELD: Very frightening.

BLITZER: We'll stay on top of the story. Fred, thanks very much.

Let's get to our "Strategy Session". Joining us now, Democratic strategist Steve Hildebrand and Republican strategist John Feehery. What do you make, John, let me start with you.

Tom Ridge announcing, you know what, he's not going to try to beat Arlen Specter for the U.S. Senate in 2010. He's not interested in that race. I see it as a huge potential bonanza for Arlen Specter's hopes to get re-elected as a Democrat.

JOHN FEEHERY, REPUBLICAN STRATEGIST: It could be. I think - things change in politics. In two years, we don't know what the issue matrix will be. Pat Toomey now doesn't have a primary to worry about because Arlen Specter is running in the Democratic primary so he might get beaten up by someone like a Joe Sestak, which might weaken Specter. Tom Ridge not running obviously is a blow to Republicans.

But I do think if Pat Toomey can run on lower taxes and smaller government, he might do well if the issue matrix changes which it may very well do.

BLITZER: Steve, what do you think of the way Arlen Specter's been welcomed, treated by his fellow Democrats in the Senate? STEVE HILDEBRAND, DEMOCRATIC STRATEGIST: I think he will be welcomed with open arms as long as he you know, shows some Democratic values. If he is Republican in sheep's clothing within the Democratic caucus, I don't know that, you know, it's going to be that helpful. My hope is that Arlen Specter will embrace some crucial agenda items like health care reform, which is desperately needed in this country and desperately needed for the people that he represents in Pennsylvania.

BLITZER: Let me show you guys, moving on to another political story we're watching. That discussion the other day at the Panetta Institute out in California between Karl Rove who was President Bush's top political advisor and David Plouffe who was the top political advisor to now President Obama during the campaign.

They had this exchange on whether the Obama White House was in a permanent campaign mode. Listen to this.

(BEGIN VIDEO CLIP)

DAVID PLOUFFE, FORMER OBAMA CAMPAIGN MANAGER: Nothing could be further from the truth. Having just run his campaign, I can assure you what's happening now is not a campaign mind set.

KARL ROVE, FORMER WHITE HOUSE SR. ADVISER: Sure they are. Every White House remains in a campaign mode.

PLOUFFE: Did your White House remain in a campaign mode?

ROVE: Sure, absolutely, but not to this degree. These guys ...

(END VIDEO CLIP)

BLITZER: All right. Let me let John weigh in on that first. First of all, is there anything wrong with politicians being in a campaign mode, whether they're seeking office or already elected?

FEEHERY: I do think there's a difference between governing and campaigning. I think the ones who focus mostly on governing when they're governing makes for better politics. I do think that the Clinton administration was the first one that really went in a campaign mode all year around. And I think the Bush administration followed suit and I think the Obama administration has followed suit in kind.

And I'll tell you why, they are trying to go outside the country, trying to use the e-mails and trying to have the e-mail lists and they're trying to have all this grass roots stuff to get legislation done. They're running campaign ads in different areas. I'm not sure if that's going to be effective. Governing is different than campaigning.

BLITZER: What do you think, Steve?

HILDEBRAND: First of all, they're not running campaign ads anywhere in the country. What President Obama is doing is trying to engage the American people in their own future and not just leaving the power with the K Street lobbyists in Washington and the special interest groups.

The fact that he's asking the American people not just his supporters, but all Americans, to be involved in solving these incredibly large problems that we have going on in this country, I think that's healthy. I don't believe it's campaign mode. It's governing mode. This is a guy who wants to govern for all the American people and not just play politics in Washington all the time.

BLITZER: Steve Hildebrand, John Feehery, guys, thanks very much for coming in. Tomorrow, by the way, the president of Afghanistan, Hamid Karzai, will be my special guest here in THE SITUATION ROOM.

Here is a question. What do you want to ask President Karzai? You can submit your video questions to ireport.com/situationroom. We'll try to include some of them in the interview tomorrow with President Karzai.

Jack Cafferty's question to you today, how much does it matter whether the president publicly observes the national day of prayer? Jack's back with your answers. That's coming up next.

And place your bets. Might legalizing online gamble help the economy or promote dangerous behavior?

And we've waited many weeks now. The results are in about which banks might survive a deeper recession. Might your bank collapse if the economy gets worse?

(COMMERCIAL BREAK)

BLITZER: The CNN Political Ticker makes our "Political Ticker" today. If you're looking for the best political blog around, look no further. The CNN Political Ticker just earned that top spot by winning a 2009 Eppy Award from "Editor & Publisher". The site grew during the 2008 campaign and is now a favorite destination for the latest political news. Congratulations to the CNN Political Ticker.

Let's go to Jack Cafferty right now for "The Cafferty File". Jack?

JACK CAFFERTY, CNN ANCHOR: Question this hour is how much does it matter whether President Obama publicly observes the National Day of Prayer? Jack writes from Florida, "This is more proof of Obama's success in leading our country. The Christian conservatives and the atheists are both fringe groups that he has displeased. I hope he continues to upset people who have nothing better to do or think about other than these non-issues. When will we Americans wise up to the very real problems we face and ignore these distractions?"

Layla says, "I'm not buying his prayer is an everyday thing excuse. He is clearly trying to slowly take Christ out of everything. I bet he soon has 'In God We Trust' taken off the money. Lord help and bless our country." Al in Lawrence, Kansas, "During the campaign, Obama was criticized about his pastor, the Reverend Wright. At his inauguration, he was criticized over who gave the prayers. If he had a public ceremony you can bet he would be criticized over who was invited. This is a no-win situation. It seems that when it comes to prayer, you can't please everyone. Prayer is private and should remain so."

Kevin in Alabama says, "Jack, I think the president is worried that he will anger his liberal buddies. This country was founded on the Judeo-Christian ethic. All great societies throughout history started down the path to ruin when they turned their back on their morality. I believe we're heading down that path. Each day we blur the lines between right and wrong."

Peter says, "No, it doesn't matter. In fact it's refreshing to see a president who doesn't parade his faith for political purposes. Keeping it low key is a good thing."

And Nicole says, "Jack, no, I don't think public displays of religion are necessary or even advised for public officials. Religion is and should be a private matter. As long as the president does what he's supposed to do, I don't care if he holds voodoo rituals in his basement."

If you didn't see your e-mail here, you can go to my blog at cnn.com/caffertyfile. Look for yours there among hundreds of others.

BLITZER: Jack Cafferty, thank you and to your viewers. You're in THE SITUATION ROOM.